Wells Fargo Prevails in Predatory Lending Suit

On July 17, 2015, Munger, Tolles & Olson obtained summary judgment on behalf of Wells Fargo in a case brought by the City Attorney of Los Angeles alleging the bank engaged in discriminatory and predatory mortgage lending practices targeting minority borrowers in violation of the Fair Housing Act (FHA).

The City of Los Angeles filed its lawsuit against Wells Fargo in 2013, accusing the bank of steering minority borrowers into subprime or other allegedly “predatory” loans. The city claimed that these loans resulted in vast numbers of foreclosures, decreased tax revenue to the city and increased demand for government services.

In his opinion, Judge Otis D. Wright II of the U.S. District Court for the Central District of California said the city failed to demonstrate that Wells Fargo’s policies led to the alleged discriminatory lending practices. “The city fails to actually identify any policy that created an artificial, arbitrary or unnecessary barrier. Instead, the city argues that a lack of a policy produced the disparate impact,” the judge wrote in a 28-page order. “Without identifying an actual policy that creates a barrier, the city cannot base its disparate impact claim on Wells Fargo’s practice of issuing high-cost loans.” Judge Wright went on to admonish the City of Los Angeles for its “scorched-earth approach,” writing “The city argued that this court should declare [Federal Housing Authority] loans violate the [Fair Housing] Act because the loans are adverse to minority borrowers. The city took this position because it was one of the only options it had to prove a violation of the act within the limitations period. In the name of advocating on behalf of minority borrowers, the city decided to fight for an outcome that would hurt those same borrowers. That decision is disheartening.” Judge Wright noted that FHA loans help minority borrowers with poor credit to obtain home loans, and the city’s attempts to make the court declare those loans in violation of the housing act show that it “apparently does not care about barriers to minority homeownership or the benefits USFHA loans provide to low income Angelenos.” He continued, “The city was willing to end a program specifically designed to help minority borrowers in exchange for a few thousand dollars in the city coffer. The city is not a champion of minority rights as it declared in the complaint. While this case began with allegations that Wells Fargo trampled the rights of minorities, it ends with the city’s failed attempt to engage in the exact same conduct.”